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THE general is back, and this time not on horseback. Since he has offered to take us back to the Pakistan that he left behind, perhaps it’s a good idea to recall what the country looked like back when he made his unceremonious exit.

The Economic Survey of Pakistan for fiscal year 2007 and 2008 made mention of the “large fiscal slippages” in that year, noting that the budget deficit was likely to come in at 6.5 per cent of GDP, against a target of 4.5 per cent.

The reason was “subsidies rising to an unsustainable level” with power tariffs and fuel as the main culprits and an “extraordinary increase in development spending”.

Continuing, the survey lays out the consequences of policy failures in that year:

“Government borrowing from the State Bank of Pakistan has reached an all time high, leading to excessive monetary expansion and thus becoming one of the principal sources of inflationary build-up in the country. In other words, financial indiscipline during the year, mainly on account of political expediency, has already caused severe macroeconomic imbalances, for which Pakistan is likely to pay a heavy price in terms of deceleration in growth and investment, and the associated rise in poverty; the widening of current account deficit and the attendant rise in public and external debt; a loss of foreign exchange reserves and the associated pressure on the exchange rate, and most importantly, higher inflation and the accompanying rise in interest rates.”

So in the final year of his reign, the general’s government succumbed to “political expediency” and abandoned all semblance of fiscal responsibility, commissioning enormous increases in “development expenditures” which in an election year basically means racketeering to buy votes, and record high printing of currency notes. It laid the foundation for the double digit inflation that hit us in 2008, as well as the rapid decline in our foreign exchange reserves which sent the country back to the IMF by November of 2008.

How could it all come crashing down so fast? After all, hadn’t the general’s government presided over some of the highest growth rates that Pakistan had ever seen?

There were two important narratives about the general’s growth rates.

One was the official narrative, peddled by his government in its public pronouncements. This narrative went something like this:

“We inherited a government ruined by a decade of mismanagement from civilian rule. We implemented the right policies, brought the fiscal house back in order, restored the country’s creditworthiness and thereby laid the foundation for growth. Once investor confidence was restored, through continuity of policy and clean governance, investment poured forth and Pakistan experienced its highest ever growth rates.”

In a time when incomes rose rapidly, the stock market spiralled upwards creating a wealth effect of its own, when the streets were cluttered with billboards enticing everyone to spend on lavish new imported goodies, when the banks were chasing you with money to lend against little more than a signature, when dinner conversations reminisced about the 1960s, when every week brought new rumours of another powerful global brand that was interested in setting up an assembly line in Pakistan — remember when Porsche and Mercedes were rumoured to be in talks to set up facilities here? — the giddy optimism of that era swept all before it.

But it wasn’t to last. Amidst the merrymaking and partying and mushrooming “event management” companies that hosted massive raves in country farmhouses with imported bartenders and DJs, there walked a grim bunch of naysayers.

“It won’t last,” went the other story. “It’s all cosmetic, fuelled by cheap liquidity, itself the product of American largesse and excessively accommodative monetary policy.”

The naysayers built their case thus:

“Pakistan is receiving record levels of inflows from the international community in return for its support in the ‘war on terror’, and this money is fuelling a bubble economy. The whole thing will end in a terrible hangover: high inflation and a balance of payments crisis, as the monetary build-up works its way through prices and the growing current account deficit eats up your reserves once the concessionary inflows inevitable dry up.”

The speed with which the entire growth miracle of the general unravelled is the clearest vindication of the naysayers’ version. In the final weeks of the general’s reign, as the curtain dropped on the mirage with which he had kept the country distracted, his minions took to the practice of repeating a few lines over and over again on the air to salvage the ever diminishing kernel of credibility from the whole affair.

“Pakistan attracted $9 billion in foreign investment last year,” declared Salman Shah, caretaker finance minister who had mirages of his own to pursue. He cited the case of a domestic bank that had found an equity partner from Malaysia which had pumped in a little less than a billion dollars as an example of the government’s success. He gave the example of Merrill Lynch, which had released a comically bullish report on the prospects of Pakistan’s economy, arguing that Wall Street firms were famous for being thorough in their research, and this report was a vote of confidence by Wall Street in the government’s policies.

Of course the equity partner in the domestic bank lived to see the value of his investment plummet when the stock market unravelled, and found himself holding the disempowered end of the bargain when he was kept out of important decisions such as senior staff appointments.

And of course Merrill Lynch went bankrupt shortly afterwards, largely on account of foolish investments made in worthless assets, and was sold for a pittance to the Bank of America. So much for Wall Street’s vote of confidence, so much for the famous foreign investor from Malaysia.

Today the general is promising to take us back to this time of mirages. The only thing one can say in response is: thank goodness he’s asking for the privilege to do so, and not snatching it!

The writer is a Karachi-based journalist covering business and economic policy.

Comments (57) Closed

Kamal

Mar 28, 2013 03:31am

Creating a service economy without a substantial product development capacity is recipe for disaster. Even US faces similar issues after outsourcing good chunk of her manfacturing capabilities. But they still have strong bases otherwise specifically in technological innovation space.
Pakistani economy has different dynmaics and fundamentals. A false model was created by Salman Shah and General's Banker PM types (to support their corruption). Neither they can defend their positions nor Merrill Lynch whose fate correctly noted by author.

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Farhan

Mar 28, 2013 04:13am

Still better than blatant and unabashed theft by the incumbent govt - but then we cannot really find fault with them can we? Afterall corruption is their haq.

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khan

Mar 28, 2013 04:47am

well, writer smartly picking up the year 2007-2008. I will suggest him to give figures of 2006 before judges started their conspiracy against Musharraf in March 2007.

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Zeeshan Shamsi

Mar 28, 2013 05:13am

A well written and balanced assessment. You can't deny that Musharraf era "felt" good, specifically now after faring the last 5 years of zardarocracy. I am not a fan of the General but we all miss him in some way.

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Krishna

Mar 28, 2013 05:39am

Awesome article.. Hilarious conclusion...Today the general is promising to take us back to this time of mirages. The only thing one can say in response is: thank goodness he?s asking for the privilege to do so, and not snatching it!.......It says everything...Actually the article talks about a logical conclusion of....Pakistan is receiving record levels of inflows from the international community in return for its support in the ?war on terror?, and this money is fuelling a bubble economy. The whole thing will end in a terrible hangover after the bubble busts.... Quite true...In fact 8 years back when Musharaff was boasting of the growth rates, I actually felt that when there is a huge inflow from international community for war on terror automatically the growth rates will increase.. But I never felt that this was a bubble which would eventually burst with such disastrous consequences that pakistan is now facing...

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F.Z

Mar 28, 2013 06:08am

Biased Article...You are considering his last one year and ignoring his previous 6 years.. How biased you are!..

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krishnan

Mar 28, 2013 06:45am

And what about his boasting about Kargil.How can India deal with him if by mistake he is elected.!!

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Umair

Mar 28, 2013 07:35am

Musharraf came to power in Oct 1999 and you have chosen to quote data from 2007 and 2008. 2008 was not even his year. PPP formed govt at the start.
How silly it is to say that the economic prosperity was fake because it was fuelled by cheap liquidity due to inflows from abroad. Liquidity is liquidity. We are operating at half the power generation capacity now compared to Musharraf's time due to shortage of liquidity. After Musharraf left there has been higher inflows from abroad, both from remittances and aid, but the economy still tanked! Tell me why?
If his economic boom was fake, why do we still have mobile industry, the televison industry and affordable internet, for example?

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Umair

Mar 28, 2013 07:37am

Musharraf came to power in Oct 1999 and you have chosen to quote data from 2007 and 2008. 2008 was not even his year. PPP formed govt at the start.
How silly it is to say that the economic prosperity was fake because it was fueled by cheap liquidity due to inflows from abroad. Liquidity is liquidity. We are operating at half the power generation capacity now compared to Musharraf's time due to shortage of liquidity. After Musharraf left there has been higher inflows from abroad, both from remittances and aid, but the economy still tanked! Tell me why?
If his economic boom was fake, why do we still have mobile industry, the television industry and affordable internet, for example?

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Mohsin Shekhani

Mar 28, 2013 07:41am

Well mr khurram hussain. Sorry if I am being rude. But this government hasn't done anything for which we can say that it was better. At least it was during the Musharraf's era, media got freedom and we experieneced growth and were able to pay off our IMF loans. I am no economists but the country did see a growth, so before you go bashing on him, what about the current government why did you forget to mention. it has taken us back many years then we can imagine and you are still crying over what Musharraf. So please go bashing on the current democratic government that only achieved one thing that was to complete 5 years.

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Adeel

Mar 28, 2013 07:44am

Useless article

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Guest63

Mar 28, 2013 07:57am

F.Z , In my humble opinion , the writer is not biased But a realistic reviewer , economic policies in general but structural changes and programmes in particular , do not show the real potentials (positive or negative ) in one year alone But over a span of 5 to 10 years , So what ever the General and his cronies did ( create bubble feel good sense in their tenor ) , started to hit back from 2008 on wards and the hard fact arrived When the Country finance managers Had to raise the Begging bowel to IMF ( which very proudly The genral and his crony wb executive shaukat aziz , famously announced in early part of his tenor , to have been broken for ever and never to go begging again! ... DO YOU RECALL THAT SLOGAN SIR ... In fact what all they did was to delay the inevitable disaster for years later .... which exactly started hitting the country from 2007/2008 year on ......... the writer is not biased , you seems to forget the real facts

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sss

Mar 28, 2013 08:02am

Horrible article.

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TamzaK

Mar 28, 2013 08:22am

While he had MANY flaws, can anyone deny that the freedom of press that exists today is a DIRECT result of that time? That alone would be a great achievement.

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Khurram Zia Khan

Mar 28, 2013 08:25am

In between all these mirages, two major telecom players (Warid & Telenor) enter in Pakistan in 2004 & government earn large amount by selling licences at more then the expected price.Etisalat deal was also real, similarly China mobile also enter Pakistan's market in last few months of Musharraf's tenure.I will not comment on reasons why Porsche wind up. Their reasons were more personal than economic.I agree with author that last year of Musharraf's era was not good for economy but in his intial 6-7 years real economy develped in leaps & bounds.Hope to see a simlar piece on the performance of democratic government's performance from 2008 to 2013

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ASK

Mar 28, 2013 08:25am

I entirely agree with F.Z
ASK

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PARVAIZ

Mar 28, 2013 09:42am

Immediate accountability and all charges cases against Musharraf should be started after arresting him he should make himself clear and clean from the courts before contesting for election after damaging Pakistan for several years enjoying 5 years in USA UK came again to do all to destroy country fors usa interests GOD BLESS PAKISTAN.

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Mohan

Mar 28, 2013 09:46am

All are hungry mad for power and looting public wealth in form of taxes and later to run safely escape after transferring public wealth to other countries and in the end escape to usa uk come back in the days of election in the banana republic of Pakistan where crocodiles are never accountable for any thing.

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R

Mar 28, 2013 09:50am

A well written article missing facts and figures all i read was an assumption of the writer backed by no evidence.

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Kayenn

Mar 28, 2013 09:56am

He got defeated than and will defeated every time in future as well......... The Kargil misadventure cant be planned by a person with the rank of General... A Major or Lt. Col maybe. It was such a badly planned misadvanture...........

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Akram

Mar 28, 2013 10:21am

Excellent financial analysis. however the author should have explained some of the financial terms in simpler terms so that those who sympathise with the general could better understand his cronies financial manipulations.

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NASAH (USA)

Mar 28, 2013 10:55am

It is NOT the economy that distinguishes Musharraf from Nawaz Sharif -- it is the immorality of an army dictatorship toppling an elected government - that does.

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Gerry D'Cunha

Mar 28, 2013 11:25am

Musharraf might win seat from karachi with mqm help - but will he win seats from other places in pakistan? winning few seats in the assembly would make his position very awkward

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Aamir J

Mar 28, 2013 11:51am

"before the judges started their conspiracy against Musharraf" LOL

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Amjad Wyne

Mar 28, 2013 12:37pm

The analysis is always excellent when we do not understand the terminology. Regrading Pakistan's economc woes, the difference between the governments is that some were able to make us feel good and the rest failed to do even that. Some were unable to come up with sound policies and the rest looted the country. Some were incapable of delivering a change but honest and the other were just plain old thieves.

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Bashir Mirza Qatar

Mar 28, 2013 12:52pm

If he was bad then the current lot is a disaster. At least nobody can accuse Musharraf of plundering the national wealth for himself or his family.

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Umar

Mar 28, 2013 01:20pm

A biased article. Writer failed to anlyse the fact that inflow of money in Musharaf regime was clearly seen and used in public whereas last 6 years of Nawaz PMLN and Zardari PPPP who took double the total historic loan even, not seen uptill now. Don't forget Musharaf regime's industries like Construction, real estate, banking, media, international mobile companies mushroom growth and Pakistan stature in International arena.... Loss of memory of Pakistanis who criticize for the sake of criticism. Please make good choice this time.

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pakistani

Mar 28, 2013 01:29pm

that is what you get from investments in consumer goods...no future

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Ubduab

Mar 28, 2013 02:40pm

Merrill Lynch went bankrupt!!
When did that happen?

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Shah

Mar 28, 2013 02:49pm

Not agreed with the writer, in fact reserve was life time high, paid foreign debts, jobless claims was low.stock market was at peak

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John

Mar 28, 2013 03:08pm

However, he takes all credit for it, knowing every well about such issues. Maybe he did plan it and displayed his vulnerability.

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smooky

Mar 28, 2013 03:48pm

horrible attempt to distort the image of a great leader.

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smooky

Mar 28, 2013 04:10pm

i am amazed to see that our 'free media' has never shed light on the economic miseries of the nawaz sharif era.
300mn$ in foreign reserves,
dollar accounts seized,
thousands of people fired from their jobs without any notice,because the government had no money to pay their salaries,
economic growth of about 1.2-2%.
All i hear is false allegations on Pervaiz Musharraf, the man in whose time..
-Pakistan's tax base and government revenue collection more than doubled from about Rs. 500b to over Rs. 1 trillion.
-Pakistan's GDP more than doubled to $144b since 1999.
-In 2007,Pakistan's total debt stood at 56% of GDP, significantly lower than the 99% of GDP in 1999.
-In spite of the election-related political turmoil, Pakistan?s economy maintained its momentum in 2007, growing by 7%, slightly more than the 6.6% for 2006. Agricultural sector growth recovered sharply, from 1.6% in 2006 to 5% in 2007, while the manufacturing sector growth continued at 8.4% in 2007, slightly more moderate than the 10% for 2006. Services grew at 8% in 2007, down from 9.6% in 2006.
-Pakistan positioned itself as one of the four fastest growing economies in the Asian region during 2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program.

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Malak Ghulam

Mar 28, 2013 04:24pm

It is interesting that the author never went deep into the cause and issues.
First the General is an Educated and Disciplined person while the politicians are not. If you disagree please share me a name.
Second the President operated the Government with Technocrates like Mr. Shaukat Aziz. Now in the whole article there was no mention of Mr. Shaukat Aziz but he was one of the person behind the crash of Stock Market and the economy.
Third there was more discipline in the Government, the law makers at that time did not Rob the country on the last day of their reign.
Did the General make mistakes, I do think so and if he says otherwise then he has a major ego issue.
But while making mistake is human, the General has a very loyal heart for the country.
And that is what Pakistan needs People that can serve our country Pakistan.

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P N Eswaran

Mar 28, 2013 04:29pm

"The only thing one can say in response is: thank goodness he?s asking for the privilege to do so, and not snatching it!"
Very good one!

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hashmi

Mar 28, 2013 04:31pm

There are several ways of criticizing a period of success . What other ways were available for progress one can very well under stand in a torn up and under sanction country. There may be some mistakes but the conditions were far better than before or even after . Whole world was inclined to help us but our destiny was going back into the dark . So much for the great politicians and there supporters.

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farook

Mar 28, 2013 04:55pm

But then ofcourse, the general himself is only a small part of the greater mirage :), i.e. the world financial system (evidence in case, as the author pointed out, collapse of Merrill Lynch). I highly anticipate that if it is not Musharraf then someone else would most definitely make the same errors.

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farook

Mar 28, 2013 04:59pm

No doubt! The current (sorry previous) regime made much disastrous mistakes than Musharraf. Also, the real problem is something else (my comment above), which we as a nation need to realise, otherwise someone else (even though patriotic and uncorrupt) would just come and make the same mistakes again.

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Zee Paki in USA

Mar 28, 2013 04:59pm

A very biased article for sure. This is why we don't trust the media. Concentrating on the final year of Musharraf when the world's economy was in a downward spiral, and ignoring the previous 6-7 years when the Pakistan economy flourished is a clear example. But you cannot fool people, when they themselves saw the economic growth and felt safe compared to PMLN and PPP regimes. Enough said.

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Bob

Mar 28, 2013 07:06pm

What about the immorality of corruption? It seems you know a couple of words "democracy" and "dictatorship" without understanding what really happened during Mush's time. Stay in US!!!

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Sandip

Mar 28, 2013 08:07pm

No matter how many such articles are published to show the man his follies, he is steadfast in his belief that everything that he did was for the good of the country and did indeed turn his country into a paradise. Whether he fakes his conviction or genuinely believes so, either way Pakistan has had to suffer the consequences of his actions. Is it any surprise then, that Pakistan finds itself where it is today after 6 decades plus of independence? It has been it's great misfortune to suffer such delusional personalities whose actions have had such wide ramifications for your country.

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Alexju@gmail.com

Mar 28, 2013 08:30pm

Yes, let's highlight the bad and leave out the good. Political agenda much?

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vivek

Mar 28, 2013 08:35pm

They say in democracy one has to choose better from worse. Certianly Musharraf( better ) is better than worse ( PPP and PMLN )

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vivek

Mar 28, 2013 08:39pm

No I don't think it is a good analysis. if you see 2008, Lehman brothers collapsed suddenly and crude oil prices went from $20 to $80+ in very short time. Both these factors were out of control of any regime. As a result inflation soared in developed countries like india/pakistan, stock markets collapsed globally. So no personal liking for Musharraf but still find it incorrect to blame musharraf for all these.

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vivek

Mar 28, 2013 08:42pm

The question is did he have any choice( Rise of internet started in 1998 ) specially after internet , people have started getting information from multiple sources.

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Asif Ali

Mar 28, 2013 09:20pm

Criticizing Musharrafs' fiscal and monetary policies?
Under Musharraf from, 2001 until 2008, the average annual GDP was 5.35.
Since then the average annual GDP has been 3.04.
The historical average GDP is 4.98. I will let you decided who has overachieved and who has underachieved.

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Khurram

Mar 28, 2013 09:20pm

Industry value addition: average 26% in year 2005 & 2006
Service Value addition: average 52% in year 2005 & 2006
Export : average 16% in year 2005 & 2006
Imports: average 22% in year 2005 & 2006
First two being more important and contribute in longer terms to an economy, these are the two categories that are maintaining our exports during worst days of Zardarocracy despite worst conditions in last 5 years.

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Khurram

Mar 28, 2013 09:22pm

Pakistan's Gross National Income jumped from US$67 Billion in 2000 to US$108 Billion in 2005 and continued the exceptional trend in 2006 to US$122 Billion. Pakistan was either at par with India or better off in percentage increase year-on-year basis.
GDP touched 7.3% and remained above 6% during the period under discussion. In absolute $ terms it jumped from US$73 Billion to 111 Billion from 2000 to 2005 and in year 2006 it was at US$129 Billion.

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Khurram

Mar 28, 2013 09:24pm

Internet users (per 1000 people) 67 people in Pakistan used internet in 2005 while in 2000 it was mere 2.2 whereas in India it jumped to 54.8 from 5.4. A remarkable IT infrastructure
Phone subscribers (per 1000 people) 24.3 (year 2000) and 115.9 (year 2005) whereas in India it was 35.4 to 127.7 for same years.

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Khurram

Mar 28, 2013 09:24pm

Long Term Debt (DOD current US$): It marginally increased in Pakistan from US$29.7 Billion to US$31 Billion from year 2000 to 2005 and the writer had totally fabricated the facts.
Total Debt Services (% of exports) It was reduce from 25.2% to 10.2% in year 2000 and 2005 respectively, another fact rejecting writer's claim

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Khurram

Mar 28, 2013 09:27pm

TAX COLLECTION increased from Rs 383 Billion to 624 in year 2005, due to two reasons namely expanding the net and the growth rate

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sattar

Mar 28, 2013 09:36pm

At least in his dictatorship, there was peace in the country, there were no targeted killings, or strikes every now and then. You did not see the positive aspects of his dictatorship, and the author conveniently forgot to mention them. What good is an elected government when the quality of life of general public is going downhill and the people in power are the only few who are enjoying the benifits of this democracy?

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Assad

Mar 29, 2013 01:50am

There is no question of morality here. Lets be clear. Military rule vs civilian rule has nothing to do with morality. Morality is judged by the right done by the nation. On this count, your elected governments have been dismal failures. Far worse than any of the military governments!

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Assad

Mar 29, 2013 01:52am

Who cares about India? Its not as if India has seized on the chance to make peace with a PPP government that has been fairly friendly towards India.
Pakistan first!

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AA

Mar 29, 2013 07:22am

I totally agree but for Musharraf fans, this is not much of an issue. I fail to understand how can anyone trust a person who ruled us for a decade unconstitutionally and unethically?

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Salem

Mar 29, 2013 09:04am

Bulls eye!! No second chance for Musharaff!! CNG, Power crises all Musharaff govt gifts... And of course the very own Zaradri and Nawaz Sharif through NRO which he promulgated for his own interests

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A Rauf

Mar 29, 2013 12:01pm

Incredible article !! and so sad that vast majority of our fellow country men and women prefer to go for simple likes (ooh he was a good looking cricketer who got us the world cup and he talks with such abandon) and dislikes (ooh that Sindhi Wadera with that cheap mustache, grinning away foolishly, hear he is not a devout Sunni, must be hanky panky) for our leaders rather than a methodical assessment of facts, as this article does.